[Sosfbay-discuss] Krugman Letter to Obama in Rolling Stone

[Brian Good]

Krugman recommends bold spending to restore employment and confidence, argues for immediate
initiation of a universal health care program and policies strengthening the middle class, and calls for 
a Truth and Reconciliation Commission to investigate Bush's crimes.  

He says it takes $200 billion a year in government spending to cut unemployment by one percent.  
Let's see, with 154 million in the labor force that's1.54 million jobs--I get $130,000 per job.  Since the 
median wage is around $30,000 a year, I sense something rather inefficient about the job-creation 
process.   Maybe we can think up something better than going into debt to restore the last gasps of 
the tailfin civilization to its former glory?

Krugman's article is almost 5000 words.  I think my 1500-word digest below got most of it without
mashing its nuances up too bad.

Brian






Dear
Mr. President:



     The
economic outlook is worse than almost anyone imagined.  We need a
million new jobs a year just to keep up with population growth. Last
year we lost 2 million, and today we're losing a half million a
month.  We may end the year 10 million jobs short, with real-world
unemployment at 15 percent.  Result:  10 million middle-class
Americans pushed into poverty,  6 million in half poverty-level "deep
poverty", many unemployed without health insurance, millions
losing homes, state and local governments losing revenue and cutting
services.



     When
other presidents faced troubled economies, the Federal Reserve was
really running the show.  Reagan's economic boom of 1984 was the work
of Fed chairman Paul Volcker.  Reagan wore the flight suit, declaring
"morning in America", but Volcker flew the plane:  he
"printed" dollars (credited the accounts of private banks)
and used the dollars to buy up U.S. government debt. This drove
interest rates down--Treasury bills went from 13 percent to eight.
Cheap mortgages and business loans stimulated spending and the
economy boomed.  The "monetary transmission mechanism"
worked.


     Now that mechanism is
broken.   Treasury bill interest rates are already 0.005 percent —
that is, zero.  And only the government gets that rate.  Fear rules
Main Street and many businesses pay higher rates now than a year and
a half ago--if they can get credit at all.  A glut of unsold homes
makes homebuilding unprofitable despite cheap mortgages.  When office
buildings stand empty, shopping malls beg for tenants, and factories
sit idle what business will spend on new capacity, and what workers
will buy new cars?  The Fed has lost its mojo, and its alphabet soup
of new "lending facilities" can't break the fear in the
credit markets.

Rescuing The
Economy
      The last president to
face such a mess was Franklin Delano Roosevelt.  Like Bush with his
$700 billion bailout, FDR provided troubled banks with cash.  But
where Bush gave the money without strings,  FDR funded the banks by
buying stock in them, and he demanded that the public's money serve
the public good.  By 1935 the U.S. government owned about a third of
the banking system, and pressured banks to lend out the money and
help the economy.  The New Deal also lent money directly to
businesses, to home buyers and to homeowners who needed to
restructure their mortgages.  

     As we bail out failing
banks, we should demand that they lend the funds out.  Let Fannie Mae
and Freddie Mac, the home-lending agencies, pass the government's low
borrowing costs on to qualified home buyers. (Fannie's and Freddie's
borrowing costs remain high because Bush refused to declare that
their bonds are backed by the full faith and credit of the taxpayer.)
 In the long run we don't want the government running financial
institutions, but for now we must do whatever it takes.   

     Besides getting credit
flowing again, you must boost the real economy of work and wages. 
Though the   WPA employed millions building roads, schools and dams,
FDR was too cautious and New Deal job creation never restored
employment to pre-Depression levels.  Only the giant public works
project, World War II, ended the Depression.   Forget normal concerns
about deficits.  Create jobs boldly, spending enough to make up for
the private sector's skittishness.  The government must spend $200
billion a year to cut unemployment one percent. Full recovery will
take $800 billion a year.  A weak economy drives down tax collection,
making scary deficits, but failure to spend is even scarier.
       The biggest problem will
be finding quick-start jobs projects.  Only $150 billion worth of
WPA-type programs — roads, government buildings, ports and other
infrastructure — is "shovel-ready" today.  Spend for
lasting value: upgrade internet infrastructure, the electrical grid,
health care information technology; aid continued investment spending
by state and local governments.  Such spending does double duty,
serving the future while providing present jobs and income.
      The hardest-hit
Americans— long-term unemployed, families without health insurance
— will spend any aid they receive, so you should enhance
unemployment insurance, food stamps, and health-insurance subsidies.
Tax cuts to lower- and middle-income Americans will also boost
spending, but less  efficiently, since some consumers will save their
tax cuts or rebates.
      2009 will be bad, and
we'll be lucky to keep unemployment under 8%.  But by 2010 we should
be on the road to recovery. How to prepare?

Beyond the
Crisis
     FDR rebuilt America not
just by "getting by" but by instituting social-insurance
programs, above all Social Security, and helping create a
middle-class society that lasted for decades (until conservatives had
their way).  You can emulate FDR's achievements.  The most important
legacy you can leave will be what other advanced nations already
have:  health care for all citizens. The current crisis shows the
vulnerabilities as health insurance disappears with lost jobs, and
has made clear that our current system is bad for business too.  The
automakers would be stronger if they were free of the  medical bills
of their former employees and their current workers.  

     Though a single-payer
system — Medicare for all --  would be fairest and most efficient,
it's not politically achievable yet because those who have good
coverage won't want to give it up. Start with a compromise plan
establishing the principle of universal care.  You should let people
keep private insurance, subsidize lower-income families, require
coverage for children, and give everyone the option to buy into a
public plan — which will probably be better and cheaper than
private insurance.  

     Ignore the naysayers who
claim the costs of economic stimulation foreclose on health care
reform. Reviving the economy may cost a trillion; Bush wasted twice
that on his war and tax cuts for the wealthiest.  The recovery plan
puts little burden on future budgets.  With low interest rates, a
trillion in new debt will cost only $30 billion a year, about 1.2
percent of the current federal budget.   The Iraq war costs about as
much each year as the insurance subsidies needed for universal health
care.
     Health care reform may
save money in the long run by avoiding unproductive bureaucracies and
treatments.   Rising health care costs are the main source for grim
long-run projections for the federal budget, so we can't afford not
to reform.
     And consider the
long-term political effects: in 1993 when the Clintons proposed
universal health care,    Republican strategists argued that showing
that government programs can actually serve the public interest would
shift American political attitudes in a progressive direction. You
should be determined to make that happen.  When universal health care
is running by 2012 it can be for your administration what Social
Security was for the New Deal, a permanent change for the better. 

     Another New Deal
achievement was what labor historians call "the Great
Compression":  America's society of rich and poor became one
that was largely middle class. Union membership tripled between 1935
and 1945. Winning higher wages for their own members, unions
furthered economic equality and enhanced workers' bargaining power
throughout the economy. Defying conservatives' predictions that wage
gains and union power would cripple employment and economic growth,
the Great Compression was followed by a postwar boom that doubled
American living standards in one generation.
     In the 1970s workers
lost much of their bargaining power because of international
competition and as Reagan and then Bush undermined workers' ability
to organize.  You can begin to reverse that by enhancing workers'
rights.  The Employee Free Choice Act would inhibit employers'
ability to intimidate workers who want to join a union, and will help
recapture the middle-class society we've lost.

Truth &
Reconciliation
     There are other issues. 
Environmental policy is paramount, and spending to enhance energy
efficiency should be in the recovery plan. 

     The Bush administration
betrayed America's ideals, and only a full accounting will let us put
that behind us.  Beltway insiders will say "let bygones be
bygones" just as they urged Bill Clinton to let the Reagan-Bush
scandals (Iran-Contra) remain hidden. Missing the lesson, we were
condemned to repeat the past as those who abused power in the name of
national security under Reagan  returned under Bush II to repeat it
on a larger scale. 

     We need a full
accounting. Maybe not even prosecutions, maybe something like South
Africa's Truth and Reconciliation Commission.  We need to know how we
came to wage war to eliminate nonexistent weapons, how torture became
U.S. policy, how the Justice Department became an instrument of
political persecution, how brazen corruption flourished in Iraq and
in Congress and the administration. It's not enough that "everybody
knows" the White House created a climate of abuse.  Soon enough
that will be denied or forgotten, and the cycle of abuse will begin
again. 

      Best is for Congress to
lead investigations, but your administration can encourage these and
end Bush's stonewalling. Let Congress have access to records and
witnesses, and let the truth be told.
      By enacting a recovery
plan even bolder and more comprehensive than the New Deal, you can
not only turn the economy around — you can put America on a path
toward greater equality for generations to come.
###


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